Dollar still on the back foot

While the main currency pairs were little changed yesterday, the euro and sterling have both edged up against the dollar in overnight trading. The single currency remains higher despite mixed February PMI readings for France (stronger than expected) and Germany (weaker than forecast) released a short while ago, trading just north of $1.0850. Sterling is hovering a touch shy of $1.27 against the US currency, with EURGBP largely unchanged at about £0.855.

Government bond yields drifted higher over the course of yesterday, amid some modest paring back of rate cut expectations for this year. European equity markets chalked up small gains, while US stocks rallied into the close to end marginally higher on the day.

ECB member Wunsch says “one should not discard a scenario in which monetary policy stays tight for longer than currently expected,” considering that “wage pressures continue to be high (and) labour markets remain tight.”

The minutes of the Fed’s January monetary policy meeting contained no surprises. While noting that interest rates had likely peaked, they warned of “the risks of moving too quickly to ease the stance of policy” and emphasised “the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2%.”

Economic data due for the rest of the day include flash PMI readings for February for the Euro area, UK and US, as well as a final reading for January CPI inflation in the Euro area and jobless claims and existing home sales in the US, while the labour force survey for the final quarter of last year is scheduled in Ireland. The ECB publishes the minutes of its January policy meeting, with a number of Fed speakers due on the wires also.